Housing Affordability for the Next Generation Accessible Approaches and Recommendations
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Photo credit: Romain Jacquet-Lagreze Photo credit: Benny Lam 2017 HONG KONG YOUNG LEADERS PROGRAMME Housing Affordability for the Next Generation Accessible Approaches and Recommendations 1 Table of Contents Section Page Executive Summary 3 Introduction & Background 5 Current Situation and Challenges 11 Institutional Change 21 Unlocking Land 26 Construction Costs 45 Managing the Market 61 Quality of Homes 77 Conclusion 91 2 Executive Summary (1/2) Housing in Hong Kong Housing is Hong Kong’s single most important policy concern as the territory recently became the world’s most unaffordable housing market. According to one study, it will take a skilled worker 18.5 years to afford a 60 m2 flat near the city centre. Property prices have surpassed their 1997 peak by 40% and the tight supply of new residential flats combined with strong end user and investment demand, stable economic performance, low interest rates and ample liquidity have boosted housing prices significantly. The government has responded by implementing measures to curb housing demand and speculative activity, and has announced targets to provide 460,000 housing units over the next ten years. Despite the government’s efforts, property prices and the demand for public housing has continued to rise. As of end-June 2017, there were about 150,200 general applicants for public rental housing with an average wait time of 4.7 years. Approximately 200,000 people live in very poor conditions in Hong Kong’s 88,000 sub-divided units. Based on the government’s projections in its Hong Kong 2030+: Towards a Planning Vision and Strategy Transcending 2030, by 2046 a total 4,800 hectares of land will be required for development. Current supply estimated indicate that there will be a shortage of 1,200 hectares of land, of which 230 hectares are for housing. Current Government Mandate In order to find long-lasting and comprehensive solutions to the housing problem, it is important to ask the fundamental question of why the housing market has become the way it is and why cooling measures in place since 2010 have failed to stem the increase of property prices. Hong Kong is one of the most tax-friendly economies in the world. One of the reasons why the government can keep taxes so low is because its largest revenue contributor is from land sales and property-related transactions (35%). Land premium payments contributed 22% of government revenue in 2016-2017. As the city’s biggest landlord, there is little incentive for the government to implement measures that will significantly cool the property market. The majority of the proceeds from land sales will go to the “capital works reserve fund”, which is used only for infrastructure projects. Over the last 20 years, infrastructure expenditure has grown 291% to HK$93 billion in 2016-17, versus housing expenditure which recorded the slowest growth amongst major policy areas over the same period of only 25% to HK$30 billion. The management of land and housing are also divided between the Transport and Housing Bureau and the Development Bureau, leading to separate policy decision making and administration. The government has so far focused predominantly on land supply as the largest policy solution to the housing crisis and in August 2017, the Chief Executive Carrie Lam formed a Land Supply Task Force to identify potential developable land for housing. In her most recent policy address she also included measures such as providing transitional housing for public housing applicants and starter homes for the middle class. However, an even more holistic approach that considers all areas of this multi-facted challenge is necessary to finding comprehensive solutions that benefit all. 3 Executive Summary (2/2) Proposal to Increase Access to Affordable Housing The proposal encourages a comprehensive review of the housing challenge in order to create new and holistic solutions that recognizes the political challenges but also seeks to reduce the influence of vested interests. The recommendations require action from the government and private sector and aims to benefits all parties, including most importantly the public. The key pillars of the policy proposal include: • A new government structure, where a new Housing Bureau is established to manage all departments related to land and housing in order to provide a better coordinated effort to manage the housing affordability challenge. This will include putting the Lands Department under the new bureau and shifting its mandate from maximizing the monetisation of land to balancing housing needs with revenue generation. • Increasing housing supply by releasing under-utilised land for residential development. The aim is to enable efficient land allocation for housing in urban areas with existing infrastructure, without the need to develop country parks or reclaim land. The comprehensive study reveals that measures to unlock existing under-utilised land can free up 4,379 hectares and provide roughly 2.9 million units, six-times the government’s total number of units required over the next ten years. • Government policies to help lower construction costs and shortening the overall project life cycle of housing development will help to speed up supply of new residential units to the market as well as decrease overall cost of housing. • Demand-management mechanisms need to be more targeted at non-local and investor demand while supporting first-time home buyers and low-income tenants through a combination of enabling policies in both the private and public housing sector. Managing the overheating of the land sale process is also required. • Quality of housing should not be compromised in the pursuit of affordability. Statutory minimum dwelling sizes, regulation of sub-divided units and provision of community services to help low-income groups and the elderly will provide better living environments. Adequate resources and direction need to be given to the redevelopment of decaying old buildings to ensure equitable and financially viable processes that help to increase housing supply. • The creation of an independent and representative platform in the form of a “Housing Policy Commission”. Its objective will be to review the current situation from a holistic viewpoint and propose suitable implementation measures for public consumption. The commission would have a short term mandate of 9-12 months to seek input from different stakeholders and make recommendations to the government. 4 Introduction & Background 5 Hong Kong Young Leaders Programme The Global Institute For Tomorrow (GIFT) is an independent pan-Asian think tank providing content-rich and intellectually-challenging executive education from an Asian worldview. Based on GIFT’s internationally recognized experiential Global Leaders Programme, the Hong Kong Young Leaders Programme (YLP) is an annual platform to inspire a new generation of leaders and a new precedent of constructive dialogue and ideas, as well as promote cooperation and collaboration across sectors. 6 Project Team In September 2017, young professionals from Hong Kong, mainland China and France representing different fields spanning business, government and civil society came together to participate in the third annual YLP. During the experiential module, the participants studied Hong Kong’s housing issues and developed a series of innovative policy recommendations for increasing access to affordable housing. Participating organisations: 一國兩制研究中心 One Country Two Systems Research Institute BF Belmont Limited 7 Supporting Organisations Supporting organisations: Other supporting organisations to be thanked include: Civic Exchange, CLP Power, Construction Industry Council, Designing Hong Kong, Gammon Construction, Our Hong Kong Foundation, Po and Helena Chung Foundation, River Star Foundation, Sino Group, Skadden, Arps, Slate, Meagher & Flom LLP, Society for Community Organisation (SoCo) 8 Scope of Project (1/2) Programme Objectives To Establish Ground Truth: • To gather information and gain a better understanding of the factors contributing to Hong Kong’s unaffordable home prices and the challenges and opportunities to making housing more affordable. • Gain a realistic picture of the various vested interests and stakeholder aspirations vis-à-vis affordable housing. To Develop: • A road map of fresh policy recommendations to increase access to affordable housing and a framework for implementation to support the government’s efforts to do so. To Recommend: • New institutional arrangements that enable the government to more effectively implement policies to manage housing prices. • Solutions that require action from the government and private sector, and are inclusive of all segments of the population. 9 Scope of Project (2/2) The YLP is a one month programme combining classroom and field based learning alongside research assignments. Methodology • During the programme, participants are divided into teams, each with a different focus connected to the most salient issues of the housing challenge (e.g. unlocking land, managing the market, etc.) • After one week of classroom learning, teams conducted research assignments to dig deeper into the root causes and potential solutions to increase access to affordable housing. • During the one-week intensive field project they engaged diverse stakeholders, conducted interviews, focus groups and site visits to learn about the problems first hand. Outcomes • With guidance from GIFT, participants analysed the information gathered through research, site